Stocks Slide With Treasuries, Gold as Dollar Jumps on Fed

A stockbroker holds a calculator as he monitors stock price information on his computer screens at a brokerage in London. Photographer: Matthew Lloyd/Bloomberg

May 22 (Bloomberg) -- U.S. stocks slid, dragging benchmark
indexes to their worst drop in three weeks, and Treasuries and
gold tumbled on concern the Federal Reserve will scale back
stimulus efforts if the labor market improves.

The Standard & Poor’s 500 Index lost 0.8 percent to
1,655.35 at 4 p.m. in New York, retreating from a record after
climbing as much as 1.1 percent earlier. Ten-year Treasury
yields jumped 11 basis points to 2.04 percent, topping 2 percent
for the first time since March. The Dollar Index rose 0.5
percent to 84.24, trading near its strongest level since 2010.
Gold futures retreated 0.7 percent to settle at $1,367.40 an
ounce, reversing a 2.6 percent rally, with losses deepening in
extended trading.

U.S. stocks extended gains earlier while gold and
Treasuries rose as Fed Chairman Ben S. Bernanke told Congress
that a premature end to its bond buying would put the economic
recovery at risk. Treasuries, gold and stocks turned lower as
Bernanke later told lawmakers the flow of purchases will slow as
the jobs outlook “improves in a real and sustainable way.” A
number of officials said they were willing to taper stimulus as
early as June, minutes from the Fed’s last meeting showed.

“The 2 percent is the magic thing on the 10-year yield,”
Frank Ingarra, head trader at Greenwich, Connecticut-based
NorthCoast Asset Management LLC, said in a telephone interview.
His firm oversees $1.6 billion. “It’s the threshold so going
toward that, people are getting a little worried,” he said.
“People are just digesting more of Bernanke’s comments.”

The slide in Treasury prices after Bernanke’s remarks
briefly sent the 10-year note’s yield above the S&P 500’s
dividend yield for the first time in more than a year, according
to data compiled by Bloomberg.

Fed Watch

Bernanke is leading the most aggressive economic stimulus
in the Fed’s 100-year history in an effort to spur growth and
reduce an unemployment rate that stands at 7.5 percent almost
four years into a recovery from the worst recession since the
Great Depression. Policy makers will know in three to four
months whether the economy is healthy enough to overcome federal
budget cuts and allow the central bank to begin reducing
stimulus, Fed Bank of New York President William C. Dudley said
in an interview airing today on Bloomberg Television.

Many Fed officials said more progress in the labor market
is needed before deciding to slow the pace of asset purchases,
according to minutes of their last meeting.

“Most observed that the outlook for the labor market had
shown progress” since the-bond buying program began in
September, according to the record of the April 30-May 1
gathering released today in Washington. “But many of these
participants indicated that continued progress, more confidence
in the outlook, or diminished downside risks would be required
before slowing the pace of purchases would become appropriate.”

Market Leaders

Cisco Systems Inc., DuPont Co. and United Technologies
Corp. lost at least 1.3 percent to lead declines in the Dow
Jones Industrial Average, sending the 30-stock gauge down 80.41
points to 15,307.17 for its worst drop since May 1. Target Corp.
slid 4 percent after profit fell 29 percent as higher taxes and
cooler temperatures hampered sales.

Pfizer Inc. rallied 1.8 percent after offering investors a
share exchange to reduce its stake in Zoetis Inc. Saks Inc.
soared 13 percent after people with knowledge of the matter said
the retailer has hired Goldman Sachs Group Inc. to explore
options including a sale. Toll Brothers Inc. jumped 3 percent
after beating analysts’ earnings estimates.

Homebuilders Reverse

An S&P gauge of 11 homebuilders fell 0.6 percent, erasing
an earlier 3.4 percent rally. Sales of previously owned U.S.
homes increased in April to the highest level in more than three
years as housing continued to gain momentum. Purchases of
existing houses rose 0.6 percent to an annual rate of 4.97
million, the most since November 2009, the National Association
of Realtors reported. The median forecast of 79 economists
surveyed by Bloomberg called for a pickup to a 4.99 million
pace.

The dollar strengthened against 15 of 16 major peers,
rising at least 1 percent versus the currencies of Canada,
Australia and New Zealand. U.S. 30-year bonds also tumbled,
sending yields up eight basis points to a two-month high of 3.21
percent.

The Stoxx Europe 600 Index climbed 0.2 percent to the
highest level in almost five years, with commodity producers,
health-care companies and retailers leading gains. Antofagasta
Plc led a rally in commodity producers as base metals rose.
Metro AG jumped 10 percent after Morgan Stanley recommended that
investors buy the German retailer for the first time in a
decade. Pandora A/S lost 11 percent after Prometheus cut its
holding in the Danish maker of jewellery.

Emerging Markets

The MSCI Emerging Markets Index retreated 0.2 percent as
declines in markets in Asia, Argentina and Mexico overshadowed a
1.7 percent jump in Hungary’s benchmark index and 1.4 percent
rally in Russia. The Hang Seng China Enterprises Index of
mainland companies listed in Hong Kong fell 0.3 percent, led by
an 8.3 percent drop in Huaneng Power International Inc. after
Citigroup Inc. cut its recommendation on concern tariffs may
fall. Volume on the Hang Seng Index was 7.3 percent below the
30-day average after a storm shut the market in the morning.

Sony Corp.’s board is discussing a proposal by Daniel
Loeb’s Third Point LLC to spin off part of its entertainment
business, Chief Executive Officer Kazuo Hirai said today. The
shares rose 5.9 percent to the highest level in more than two
years in Tokyo after the Nikkei newspaper earlier reported the
board may discuss the spin-off.

Yen Weakens

The yen declined versus 11 of its 16 major peers after a
government report showed the trade deficit swelled more in April
more than economists forecast and exports were lower than
estimated. It slid 0.7 percent to 103.25 per dollar, near the
weakest level since 2008.

The franc weakened beyond 1.26 per euro for the first time
in two years after Swiss National Bank President Thomas Jordan
said a shift of the cap on the currency and negative interest
rates are among steps the central bank could take.

Gasoline for June delivery declined for a third day,
losing 0.9 percent to $2.8194 a gallon, after a U.S. report
showed supplies unexpectedly gained. Prices at the pump have
jumped 13.8 cents this month, according to AAA, the largest U.S.
motoring organization, as the summer driving season approaches.

West Texas Intermediate oil slipped 2 percent to $94.28 a
barrel after a government report showed U.S. inventories fell
less than expected last week. The Energy Information
Administration said that supplies dropped 338,000 barrels to
394.6 million. The report was projected to show a 1 million-barrel drop, according to a Bloomberg survey of 11 analysts.